Buoy manufactures flotation vests in Charleston

Price: $3.99


P20-21A 1 2 Identifying which information is relevant, and making special order and pricing decisions [15–20 min]
Buoy manufactures flotation vests in Charleston, South Carolina. Buoy’s contribu- tion margin income statement for the month ended December 31, 2012, contains the following data:

BUOY
Income Statement
For the Month Ended December 31, 2012
Sales in units 32,000
Operating income 116,000
Table on page 1000

Suppose Overboard wishes to buy 3,900 vests from Buoy. Acceptance of the order will not increase Buoy’s variable marketing and administrative expenses. The Buoy plant has enough unused capacity to manufacture the additional vests. Overboard has offered $8.00 per vest, which is below the normal sale price of $17.

Requirements
1. Identify each cost in the income statement as either relevant or irrelevant to Buoy’s decision.
2. Prepare an incremental analysis to determine whether Buoy should accept this special sales order.
3. Identify long-term factors Buoy should consider in deciding whether to accept the special sales order.